PURCHASE AGREEMENT

 

 

                               PURCHASE AGREEMENT

 

      This Purchase   Agreement   (this   "AGREEMENT") is dated as of April 4, 2005

among Calypte Biomedical   Corporation,   a Delaware   corporation (the "COMPANY"),

and the investors   identified on the signature   pages hereto (each an "INVESTOR"

and, collectively, the "INVESTORS").

 

      WHEREAS,   subject to the terms and conditions set forth in this Agreement,

the Company   desires to borrow   certain sums from each of the Investors   and, in

consideration   thereof issue certain   convertible   notes and warrants to each of

the Investors,   and each Investor,   severally and not jointly, desires to make a

loan to the Company and accept such notes and   warrants   from the   Company,   all

pursuant to the terms set forth herein.

 

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this

Agreement,   and for   other   good and   valuable   consideration   the   receipt   and

adequacy of which are hereby   acknowledged,   the Company and the Investors agree

as follows:

 

                                   ARTICLE I.

                                   DEFINITIONS

 

      1.1   Definitions.   In   addition   to the terms   defined   elsewhere   in this

Agreement,   for all purposes of this   Agreement,   the following terms shall have

the meanings indicated in this Section 1.1:

 

            "ACTION"   means any   action,   suit,   inquiry,   notice of   violation,

proceeding    (including   any   partial    proceeding   such   as   a   deposition)   or

investigation pending or threatened in writing against or affecting the Company,

any   Subsidiary or any of their   respective   properties   before or by any court,

arbitrator,    governmental   or   administrative    agency,    regulatory   authority

(federal,   state,   county,   local or foreign),   stock market,   stock exchange or

trading facility.

 

            "ADDITIONAL WARRANT" means the Common Stock purchase warrant, in the

form of Exhibit D, issuable to each Investor at the Closing.

 

            "AFFILIATE"   means any Person that,   directly or indirectly   through

one or more   intermediaries,   controls or is   controlled   by or is under   common

control with a Person, as such terms are used in and construed under Rule 144.

 

            "BANKRUPTCY   EVENT"   means   any of the   following   events:   (a)   the

Company   or   any   Subsidiary    commences   a   proceeding   under   any   bankruptcy,

reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,

insolvency or   liquidation   or similar law of any   jurisdiction   relating to the

Company or any Subsidiary thereof; (b) there is commenced against the Company or

any Subsidiary any such case or proceeding that is not dismissed   within 60 days

after commencement;   (c) the Company or any Subsidiary is adjudicated by a court

of competent   jurisdiction insolvent or bankrupt or any order of relief or other

order   approving any such case or proceeding is entered;   (d) the Company or any

Subsidiary   suffers any   appointment   of any custodian or the like for it or any

substantial part of its property that is not discharged or stayed within 60

 

 

<PAGE>

 

days; (e) under   applicable   law the Company or any   Subsidiary   makes a general

assignment for the benefit of creditors; (f) the Company or any Subsidiary fails

to pay,   or states   that it is   unable   to pay or is   unable   to pay,   its debts

generally as they become due; (g) the Company or any Subsidiary   calls a meeting

of   its   creditors   with   a view   to   arranging   a   composition,   adjustment   or

restructuring of its debts; or (h) the Company or any Subsidiary,   by any act or

failure to act, expressly   indicates its consent to, approval of or acquiescence

in any of the   foregoing or takes any   corporate or other action for the purpose

of effecting any of the foregoing.

 

            "BASIC AMOUNT" shall have the meaning set forth in Section 4.4.

 

            "BENEFIT   ARRANGEMENT"   means at any time an employee   benefit   plan

within the meaning of Section 3(3) of ERISA which is not a Plan or Multiemployer

Plan and which is maintained or otherwise contributed by the Company.

 

            "BENEFIT PLAN" has the meaning set forth in Section 3.1(aa)(ii).

 

            "BUSINESS   DAY"   means any day except   Saturday,   Sunday and any day

that is a federal legal holiday or a day on which   banking   institutions   in the

State of New York are authorized or required by law or other governmental action

to close.

 

            "CLOSING"   means the closing of the   purchase   and sale of Notes and

Warrants contemplated by Section 2.1.

 

            "CLOSING DATE" means the Business Day immediately following the date

on which all of the   conditions set forth in Section 2.1(d) and 2.1(e) have been

satisfied, or such other date as the parties may agree.

 

            "CODE" means the Internal Revenue Code of 1986, as amended.

 

             "COMMISSION" means the Securities and Exchange Commission.

 

            "COMMON STOCK" means the common stock of the Company, par value $.03

per share,   and any   securities   into which such common   stock may   hereafter be

reclassified, converted or exchanged.

 

            "COMMON STOCK   EQUIVALENTS"   means any   securities of the Company or

any   Subsidiary   which entitle the holder thereof to acquire Common Stock at any

time, including without limitation,   any debt, preferred stock, rights, options,

warrants   or   other    instrument   that   is   at   any   time   convertible   into   or

exchangeable   for, or otherwise   entitles the holder thereof to receive,   Common

Stock or other   securities   that   entitle   the holder to   receive,   directly   or

indirectly, Common Stock.

 

            "COMPANY COUNSEL" means Coudert Brothers LLP.

 

                                       2

<PAGE>

 

            "DEBT" of any Person means at any date, without duplication, (i) all

obligations   of such Person for borrowed   money,   (ii) all   obligations   of such

Person   evidenced by bonds,   debentures,   notes,   or other   similar   instruments

issued by such Person,   (iii) all   obligations   of such Person in respect of the

deferred purchase price of property or services   (including   contingent payment,

earn-out and similar obligations but excluding current accounts payable incurred

in the ordinary   course of   business),   (iv) all   obligations   of such Person as

lessee which (y) are   capitalized in accordance   with GAAP or (z) arise pursuant

to sale-leaseback transactions, (v) all reimbursement obligations of such Person

in   respect   of   letters   of   credit   or   other   similar   instruments,   (vi) all

obligations,   contingent   or   otherwise,   of such   Person in respect of bankers'

acceptances,   (vii) obligations of such Person to pay a specified purchase price

for goods or services   whether or not delivered or accepted   (e.g.,   take or pay

obligations) or similar   obligations,   (viii) all obligations and liabilities of

others of the foregoing types ("indebtedness") secured by a Lien on any asset of

such Person, whether or not such Debt is otherwise an obligation of such Person,

and (ix) any obligation, contingent or otherwise, of such Person guaranteeing or

having   the   economic   effect   of   guaranteeing   or   agreeing   to pay or   become

responsible   for any   indebtedness   of any other   Person in any manner,   whether

directly or   indirectly,   including   without   limitation   any obligation of such

Person,   direct or indirect,   (a) to purchase or pay (or advance or supply funds

for the purchase or payment of) such   indebtedness or to purchase (or to advance

or supply   funds for the   purchase   of) any   security   for the   payment   of such

indebtedness,   (b) to purchase   property or services for the purpose of assuring

the owner of such indebtedness of its payment,   or (c) to maintain the solvency,

working capital, equity, cash flow, fixed charge or other coverage ratio, or any

other   financial   condition   of the primary   obligor so as to enable the primary

obligor to pay any indebtedness or to comply with any agreement   relating to any

indebtedness   or   obligation,   provided that the term   "indebtedness"   shall not

include   endorsements   for   collection   or   deposit   in the   ordinary   course of

business.   The Debt of any Person   shall   include   the Debt of any other   entity

(including   any   partnership   in which such Person is a general   partner) to the

extent such Person is liable   therefor   as a result of such   Person's   ownership

interest in or other   relationship   with such   entity,   except to the extent the

terms of such Debt expressly provide that such Person is not liable therefor.

 

            "DISCLOSURE MATERIALS" has the meaning set forth in Section 3.1(h).

 

            "EFFECTIVE   DATE"   means   the date that the   Registration   Statement

required by Section 2(a) of the Registration   Rights Agreement is first declared

effective by the Commission.

 

            "ELIGIBLE MARKET" means any of the New York Stock Exchange, American

Stock Exchange, NASDAQ National Market or NASDAQ SmallCap Market.

 

            "ERISA" means the Employee   Retirement   Income Security Act of 1974,

as amended, or any successor statute.

 

            "ERISA GROUP" means the Company and each   Subsidiary and all members

of a controlled group of corporations   and all trades or businesses   (whether or

not incorporated)   under common control which,   together with the Company or any

Subsidiary, are treated as a single employer under the Code.

 

                                        3

<PAGE>

 

            "EXCHANGE   ACT"   means   the   Securities   Exchange   Act of   1934,   as

amended.

 

            "GAAP" means U.S. generally accepted accounting principles.

 

            "INITIAL   WARRANT" means the Common Stock purchase   warrant,   in the

form of Exhibit C, issuable to each Investor at the Closing.

 

            "INTELLECTUAL   PROPERTY RIGHTS" has the meaning set forth in Section

3.1(p).

 

            "INVESTMENT   AMOUNT"   means,   with   respect   to each   Investor,   the

investment amount indicated below such Investor's signature to this Agreement.

 

            "INVESTOR DELIVERABLES" has the meaning set forth in Section 2.1(c).

 

            "INVESTOR PARTY" has the meaning set forth in Section 4.12.

 

            "LIEN" means any lien, charge, encumbrance, security interest, right

of first refusal or other restrictions of any kind.

 

            "LOSSES" has the meaning set forth in Section 4.12.

 

            "MATERIAL   ADVERSE   EFFECT"   means any of (i) a material and adverse

effect on the legality,   validity or enforceability of any Transaction Document,

(ii) a   material   and   adverse   effect on the   results   of   operations,   assets,

prospects, business or condition (financial or otherwise) of the Company and the

Subsidiaries or (iii) an adverse   impairment to the Company's   ability to timely

perform its obligations under any Transaction Document.

 

            "NEW YORK COURTS" means the state and federal   courts sitting in the

City of New York, Borough of Manhattan.

 

            "NOTES" means the secured   convertible   promissory notes issuable by

the   Company   to the   Investors   at Closing in the Form of Exhibit A, due on the

three year anniversary of the Closing Date.

 

            "NOTICE OF   ACCEPTANCE"   shall have the meaning set forth in Section

4.4.

 

            "OFFER" shall have the meaning set forth in Section 4.4.

 

            "OFFERED   SECURITIES"   shall have the   meaning   set forth in Section

4.4.

 

            "OUTSIDE DATE" means April 6, 2005.

 

            "PBGC" means the Pension Benefit Guarantee Corporation or any entity

succeeding to any or all of its functions under ERISA.

 

                                       4

<PAGE>

 

            "PERMITTED   FOREIGN   SUBSIDIARY   DEBT"   means   Debt   of all   foreign

Subsidiaries   and   guarantees   by the   Company   of such   Debt,   in an   aggregate

principal   amount   (without   duplication)   not to exceed   $5,000,000 at any time

outstanding.

 

            "PERMITTED   INDEBTEDNESS"   means:   (a) Debt in existence on the date

hereof, as shown on Schedule 5.3,   including any extensions or renewals thereof,

provided,   there   is no   increase   in the   principal   amount   thereof   or   other

significant change in the terms thereof, (b) trade payables incurred and paid in

the ordinary course of business,   (c) the Vencore Purchase Money Financing,   (d)

Debt of the   Company   incurred to finance the   purchase   of   equipment   or other

personal property,   which is secured by the property being purchased   (including

obligations of the Company as lessee which are   capitalized   in accordance   with

GAAP or arise pursuant to sale-leaseback transactions) in an aggregate principal

amount not to exceed   $3,000,000 at any time outstanding   (excluding the Vencore

Purchase Money   Financing),   provided that such Debt is incurred   promptly after

the   acquisition of such equipment or personal   property,   but in no event later

than 90 days   thereafter,   (e) unsecured Debt of the Company in connection   with

transactions involving acquisitions, equipment or real property leases, sale and

leasebacks,   strategic partnering, or licensing arrangements,   provided that (i)

the aggregate   principal amount of such Debt shall not exceed   $3,000,000 at any

time outstanding and (ii) such Debt is subordinated to the Obligations   pursuant

to subordination   agreements in form and substance   acceptable to the Investors,

(f)   unsecured   Debt of the Company   incurred in   connection   with any financing

arrangement   with Marr   Technologies BV in an aggregate   principal amount not to

exceed   $5,500,000   at any   time   outstanding   and   (g)   the   Permitted   Foreign

Subsidiary Debt.

 

            "PERMITTED   LIENS"   means:   (a)   Liens   for   taxes,   assessments   or

governmental   charges not   delinquent   or being   contested   in good faith and by

appropriate   proceedings and for which adequate reserves in accordance with GAAP

are   maintained on the books of the Company or the   applicable   Subsidiary;   (b)

Liens   arising   out   of   deposits   in   connection   with   workers'   compensation,

unemployment insurance, old age pensions, social security or retirement benefits

legislation incurred in the ordinary course of business; (c) deposits or pledges

to secure bids,   tenders,   contracts   (other than   contracts   for the payment of

money),   leases,   statutory   obligations,   surety   and appeal   bonds,   and other

obligations   of like nature   arising in the   ordinary   course of business of the

Company or a Subsidiary; (d) Liens imposed by law, such as mechanics', workers',

materialmens',   carriers' or other like liens arising in the ordinary   course of

business of the Company or a Subsidiary   which secure the payment of obligations

which are not past due or which are being diligently   contested in good faith by

appropriate   proceedings and for which adequate reserves in accordance with GAAP

are   maintained on the books of the Company or the   applicable   Subsidiary;   (e)

Liens   existing on the date hereof and specified on Schedule   3.1(dd),   provided

that each such Lien does not apply to other   property or asset of the Company or

any Subsidiary and such Lien shall secure only those   obligations its secures on

the date   hereof   (including   any   extensions   or renewals   thereof   that do not

increase in the principal   amount   thereof);   (f) Liens on the assets of foreign

Subsidiaries securing Permitted Foreign Subsidiary Debt, (g) Liens of commercial

depository    institutions,    arising   in   the    ordinary    course   of   business,

constituting   a   statutory   or common   law right of setoff   against   amounts   on

deposit with such institution; (h) rights of way, zoning restrictions, easements

and similar   encumbrances   affecting   the Company's   real property   which do not

materially   interfere   with   the use of such   property;   (i)   Liens   on fixed or

 

                                       5

<PAGE>

 

capital assets   acquired by the Company,   provided that (1) such Lien secures in

connection   with   Debt   described   in   clause   (c) or (d) of the   definition   of

Permitted Indebtedness,   (2) such Lien and the Debt secured thereby are incurred

within 90 days after such   acquisition,   (3) the Debt   secured   thereby does not

exceed the cost of   acquiring   such   assets and (4) such Lien shall not apply to

any other   assets or property of the   Company or any   Subsidiary;   and (j) Liens

created under the Security Agreement.

 

            "PERSON"   means an individual or   corporation,   partnership,   trust,

incorporated or   unincorporated   association,   joint venture,   limited liability

company,   joint stock company,   government (or an agency or subdivision thereof)

or other entity of any kind.

 

            "PLAN" means at any time an employee pension plan benefit plan which

is   covered by Title IV of ERISA or subject   to the   minimum   funding   standards

under the Code and either (i) is maintained, or contributed to, by any member of

the ERISA   group for   employees   of any member of the ERISA group or (ii) has at

any time within the preceding five years been maintained,   or contributed to, by

any Person   which was at such time a member of the ERISA Group for   employees of

any Person which was at such time a member of the ERISA group.

 

            "PRIOR PLACEMENTS" means that certain Securities Purchase Agreement,

dated May 28, 2004, and that certain Securities Purchase   Agreement,   dated July

9,   2004,   as each have been   amended   pursuant   to that   certain   Amendment   to

Securities Purchase Agreement, dated as of the date hereof ("AMENDMENT").

 

            "PROCEEDING"   means   an   action,    claim,   suit,    investigation   or

proceeding    (including,    without   limitation,    an   investigation   or   partial

proceeding, such as a deposition), whether commenced or threatened.

 

            "REFUSED   SECURITIES"   shall have the   meaning   set forth in Section

4.4.

 

            "REGISTRATION   STATEMENT" means a registration statement meeting the

requirements   set forth in the   Registration   Rights   Agreement and covering the

resale by the Investors of the Underlying Shares and Warrant Shares.

 

            "REGISTRATION    RIGHTS   AGREEMENT"   means   the   Registration   Rights

Agreement,   dated as of the date of this   Agreement,   among the   Company and the

Investors, in the form of Exhibit B hereto.

 

            "REQUIRED   INVESTORS"   means   one   or   more   Investors   representing

greater   than   50%   of   the   aggregate    principal   amount   of   all   Notes   then

outstanding.

 

            "REQUIRED   MINIMUM"   means,   as of any date,   the maximum   aggregate

number of shares of Common   Stock then   issued or   potentially   issuable   in the

future   pursuant to the   Transaction   Documents that the Company is obligated to

issue, whether   contingently or otherwise,   including,   without limitation,   any

Underlying   Shares   issuable   upon   conversion   in full of all Notes and Warrant

Shares   issuable   upon exercise in full of all Warrants   (without   regard to any

otherwise   applicable   conversion or exercise   restrictions   contained   therein)

(assuming for such purpose that the   Conversion   Price (as defined in the Notes)

and the Exercise Price (as defined in the Warrants) equals 75% of the Conversion

Price and Exercise Price in effect on the Closing Date).

 

                                       6

<PAGE>

 

            "RESTRICTED   PAYMENT"   means,   with   respect to any Person,   (a) any

direct or indirect   distribution,   dividend or other   payment   (whether in cash,

securities or other property) on account of any equity interest in, or shares of

capital stock or other   securities of, such Person,   (b) any payment (whether in

cash,   securities   or other   property),   including   any sinking   fund or similar

deposit,   on   account   of the   purchase,   redemption,   retirement,   acquisition,

cancellation   or   termination   of any such equity   interest,   (c) any payment of

principal or interest or any purchase,   redemption,   retirement,   acquisition or

defeasance   with respect to any Debt of such Person which is subordinated to the

payment of the Notes, unless such payment is expressly permitted by the terms of

the applicable   subordination   agreement, (d) other than as permitted by Section

5.10, the   acquisition   for value by such Person of any Debt or equity   interest

issued by any Affiliate (other than a wholly-owned   subsidiary) thereof, and (e)

any   management,   consulting or other   similar   fees,   or any interest   thereon,

payable by such Person to any Affiliate of such Person (other than the Company),

or to any other Person other than an unrelated third party;   provided,   however,

that Restricted Payments shall not include payments under consulting   agreements

so long as such consulting   agreements which contain equity components have been

approved by the Board of Directors of the Company.

 

            "RULE 144" means Rule 144 promulgated by the Commission   pursuant to

the   Securities   Act,   as such Rule may be   amended   from   time to time,   or any

similar   rule   or   regulation    hereafter    adopted   by   the   Commission   having

substantially the same effect as such Rule.

 

            "SEC REPORTS" has the meaning set forth in Section 3.1(h).

 

            "SECURITIES"   means the Notes, the Warrants,   the Underlying   Shares

and the Warrant Shares.

 

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

 

            "SECURITY AGREEMENT" has the meaning set forth in Section 2.1(b).

 

            "SHORT   SALES"   include,   without   limitation,   all "short sales" as

defined   in Rule   3b-3   of the   Exchange   Act and   Rule   200   promulgated   under

Regulation SHO under the Exchange Act and all types of direct and indirect stock

pledges,   forward sale contracts,   options,   puts, calls, short sales, swaps and

similar   arrangements   (including on a total return basis),   and sales and other

transactions through non-US broker dealers or foreign regulated brokers.

 

            "STRATEGIC TRANSACTION" means a transaction or relationship in which

the Company issues shares of Common Stock or other   securities of the Company to

a Person which is, itself or through its subsidiaries, an operating company in a

business   synergistic   with the business of the Company and in which the Company

receives   benefits in addition to the investment of funds, but shall not include

a   transaction   in which the   Company is issuing   securities   primarily   for the

purpose of raising   capital or to an entity whose primary   business is investing

in   securities.   Strategic   Transaction   includes   bona fide   equipment   or real

property leases, sale and leaseback, or licensing agreements, provided that such

transaction   is approved by the Board of Directors of the company and is not for

the purpose of raising capital.

 

                                        7

<PAGE>

 

            "SUBSEQUENT   PLACEMENT"   shall have the meaning set forth in Section

4.4.

 

            "SUBSIDIARY"   means any   subsidiary   of the Company now or hereafter

existing in which the Company,   directly or   indirectly,   owns a majority of the

voting stock or other voting equity interests.

 

            "TRADING DAY" means (i) a day on which the Common Stock is traded on

an   Eligible   Market,   or (ii) if the Common   Stock is not listed on an Eligible

Market,   a day on which   the   Common   Stock is   traded   in the   over-the-counter

market,   as reported by the OTC Bulletin Board or the National   Quotation Bureau

Incorporated,   or (iii) if the Common   Stock is not   quoted on the OTC   Bulletin

Board, a day on which the Common Stock is quoted in the over-the-counter   market

as   reported   by the   National   Quotation   Bureau   Incorporated   (or any similar

organization   or   agency   succeeding   to its   functions   of   reporting   prices);

provided, that in the event that the Common Stock is not listed or quoted as set

forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

            "TRADING MARKET" means whichever of the New York Stock Exchange, the

American Stock Exchange,   the NASDAQ National Market, the NASDAQ SmallCap Market

or OTC Bulletin   Board on which the Common Stock is listed or quoted for trading

on the date in question.

 

            "TRANSACTION   DOCUMENTS"   means   this   Agreement,    the   Notes,   the

Registration   Rights   Agreement,   the   Warrants,   the   Security   Agreement,   the

Amendment,   the Voting Agreement and any other documents or agreements   executed

in connection with the transactions contemplated hereunder.

 

            "UNDERLYING   SHARES" means the shares of Common Stock   issuable upon

conversion of the Notes and payment of interest thereunder.

 

            "VENCORE   PURCHASE   MONEY   FINANCING"   means   Debt   of   the   Company

incurred   in   connection   with the Vencore   equipment   financing   line   (whether

pursuant to a loan,   capital lease   obligation,   sale/leaseback   transaction   or

otherwise) in an aggregate   principal   amount not to exceed one million   dollars

($1,000,000) at any time outstanding, provided that such Debt is incurred within

90 days after such acquisition of such equipment.

 

            "VOTING AGREEMENT" means that certain voting agreement, by and among

the   Company   and the   stockholders   identified   therein,   dated   as of the date

hereof.

 

            "VWAP" means, with respect to any date of   determination,   the daily

volume weighted   average price (as reported by Bloomberg using the VAP function)

of the Common Stock on such date of determination,   or if there is no such price

on such date of   determination,   then the daily volume weighted average price on

the date nearest preceding such date.

 

                                       8

<PAGE>

 

            "WARRANTS"   means,   collectively,    the   Initial   Warrants   and   the

Additional Warrants.

 

            "WARRANT   SHARES"   means the shares of Common   Stock   issuable   upon

exercise of the Warrants.

 

                                  ARTICLE II.

                                PURCHASE AND SALE

 

      2.1 Closing.

 

            (a) Subject to the terms and conditions set forth in this Agreement,

at the   Closing   the Company   shall   issue and sell to each   Investor,   and each

Investor shall, severally and not jointly,   purchase from the Company, the Notes

and the Warrants   representing such Investor's   Investment   Amount.   The Closing

shall take place at the offices of Bryan Cave LLP,   1290 Avenue of the Americas,

New York,   NY 10104 at 4:30 p.m.   (New York City time) on the Closing Date or at

such other location or time as the parties may agree.

 

            (b) At the   Closing,   the   Company   shall   deliver   or   cause   to be

delivered to each Investor the following (the "COMPANY DELIVERABLES"):

 

                  (i) Notes in the aggregate   principal amount of the Investment

Amount   indicated   below   such   Investor's   name on its   signature   page of this

Agreement, registered in the name of such Investor;

 

                  (ii)   Initial   Warrants,    registered   in   the   name   of   such

Investor,   pursuant to which such   Investor   shall have the right to acquire the

number of shares of Common Stock equal to 100% of the Underlying Shares issuable

upon an assumed   conversion of the Notes issuable to such Investor in accordance

with Section 2.1(b)(i) (without regard to any conversion   restrictions contained

thereunder);

 

                  (iii)   Additional   Warrants,   registered   in the   name of such

Investor,   pursuant to which such   Investor   shall have the right to acquire the

number of shares of Common Stock equal to 45% of the Underlying   Shares issuable

upon an assumed   conversion of the Notes issuable to such Investor in accordance

with Section 2.1(b)(i) (without regard to any conversion   restrictions contained

thereunder);

 

                  (iv) the legal   opinion of Company   Counsel,   in agreed   form,

addressed to the Investors;

 

                  (v) the Registration   Rights   Agreement,   duly executed by the

Company;

 

                  (vi) a security   agreement,   duly executed by the Company,   in

the form   attached   hereto as Exhibit D (as amended,   supplemented   or otherwise

modified from time to time, the "SECURITY AGREEMENT");

 

                                       9

<PAGE>

 

                  (vii) a certificate   executed by a duly authorized   officer of

the Company certifying that (i) all   representations   and warranties made by the

Company   and   information   furnished   by the   Company in any   schedules   to this

Agreement, are true and correct in all material respects as of the Closing Date,

(ii) all covenants,   agreements and obligations required by this Agreement to be

performed or complied with by the Company, prior to or at the Closing, have been

performed   or   complied   with   and   (iii)   the   items    referenced   in   Sections

2.1(d)(iv)-(vi) are true and correct as of the Closing Date;

 

                  (viii) lien and record   search   reports in form and   substance

acceptable   to the Investors   showing that there are no Liens on the   collateral

security   granted   under the   Security   Agreement,   other than   Liens   expressly

permitted thereby; and

 

                  (ix)   any   other   documents    reasonably    requested   by   such

Investor.

 

            (c) At the   Closing,   each   Investor   shall   deliver   or cause to be

delivered to the Company the following (the "INVESTOR DELIVERABLES"):

 

                  (i) the Investment Amount indicated below such Investor's name

on its   signature   page of this   Agreement,   in   United   States   dollars   and in

immediately   available   funds,   by wire   transfer   to an account   designated   in

writing by the Company for such purpose;

 

                  (ii) the Registration Rights Agreement,   duly executed by such

Investor; and

 

                  (iii) the Security Agreement, duly executed by such Investor.

 

            (d)   Conditions   Precedent   to the   Obligations   of an   Investor   to

Purchase   Notes and Warrants.   The   obligation of each Investor to acquire Notes

and   Warrants   and make loans at the Closing is subject to the   satisfaction   or

waiver by such   Investor,   at or before the   Closing,   of each of the   following

conditions:

 

                  (i)   Representations   and Warranties.   The representations and

warranties of the Company   contained in the Transaction   Documents shall be true

and correct as of the date when made and as of the   Closing   Date as though made

on and as of such date;

 

                  (ii) Performance. The Company shall have performed,   satisfied

and complied   with all   covenants,   agreements   and   conditions   required by the

Transaction   Documents to be   performed,   satisfied or complied with by it at or

prior to the Closing;

 

                  (iii)   Officer's    Certificate.    The   officer's    certificate

described in Section 2.1(b)(vii) hereof shall have been delivered;

 

                  (iv) No Injunction.   No statute, rule,   regulation,   executive

order,   decree,    ruling   or   injunction   shall   have   been   enacted,    entered,

promulgated   or endorsed by any court or   governmental   authority   of   competent

jurisdiction   that   prohibits   the   consummation   of   any   of   the   transactions

contemplated by the Transaction Documents;

 

                                        10

<PAGE>

 

                  (v) Adverse Changes. Since the execution of this Agreement, no

event or series of events shall have occurred   that has had or would   reasonably

be expected to result in a Material Adverse Effect;

 

                   (vi) No   Suspensions   of   Trading   in Common   Stock;   Listing.

Trading in the Common Stock shall not have been   suspended by the   Commission or

any Trading Market   (except for any   suspensions of trading of not more than one

Trading Day solely to permit dissemination of material information regarding the

Company)   at any time since the date of   execution   of this   Agreement,   and the

Common   Stock shall have been at all times since such date listed for trading on

an Eligible Market; and

 

                   (vii) Company   Deliverables.   The Company shall have delivered

the Closing Company Deliverables in accordance with Section 2.1(b).

 

                  (e) Conditions   Precedent to the Obligations of the Company to

sell   Notes and   Warrants.   The   obligation   of the   Company   to sell   Notes and

Warrants at the Closing is subject to the satisfaction or waiver by the Company,

at or before the Closing, of each of the following conditions:

 

                  (i)   Representations   and Warranties.   The representations and

warranties of each Investor contained herein shall be true and correct as of the

date when made and as of the Closing Date as though made on and as of such date;

 

                  (ii)    Performance.    Each   Investor   shall   have    performed,

satisfied and complied in all material   respects with all covenants,   agreements

and conditions required by the Transaction Documents to be performed,   satisfied

or complied with by such Investor at or prior to the Closing;

 

                  (iii) No Injunction.   No statute, rule, regulation,   executive

order,   decree,    ruling   or   injunction   shall   have   been   enacted,    entered,

promulgated   or endorsed by any court or   governmental   authority   of   competent

jurisdiction   that   prohibits   the   consummation   of   any   of   the   transactions

contemplated by the Transaction Documents; and

 

                  (iv)    Investors    Deliverables.    Each   Investor   shall   have

delivered its Investor Deliverables in accordance with Section 2.1(c).

 

            (f) American   Stock Exchange   Approval.   The American Stock Exchange

shall have orally   approved   the   American   Stock   Exchange   Additional   Listing

Application   submitted by the Company (in a form   acceptable   to the   Investors)

with respect to the transactions contemplated by the Transaction Documents.

 

                                  ARTICLE III.

                         REPRESENTATIONS AND WARRANTIES

 

      3.1   Representations   and   Warranties of the Company.   The Company   hereby

makes the following representations and warranties to each Investor:

 

                                       11

<PAGE>

 

            (a) Subsidiaries. The Company has no direct or indirect Subsidiaries

other than as   specified   in the SEC   Reports.   Except as   disclosed in Schedule

3.1(a),   the Company owns,   directly or indirectly,   all of the capital stock of

each   Subsidiary   free and   clear of any and all   Liens   (other   than   Permitted

Liens),   and all the issued   and   outstanding   shares of   capital   stock of each

Subsidiary   are validly   issued and are fully paid,   non-assessable   and free of

preemptive and similar rights.

 

            (b) Organization and Qualification.   The Company and each Subsidiary

are duly   incorporated   or   otherwise   organized,   validly   existing and in good

standing under the laws of the jurisdiction of its incorporation or organization

(as   applicable),   with the   requisite   power and   authority   to own and use its

properties   and   assets and to carry on its   business   as   currently   conducted.

Neither the Company nor any   Subsidiary is in violation of any of the provisions

of its   respective   certificate   or articles of   incorporation,   bylaws or other

organizational   or charter   documents.   The Company and each Subsidiary are duly

qualified to conduct its   respective   businesses   and are in good   standing as a

foreign   corporation or other entity in each jurisdiction in which the nature of

the   business   conducted   or   property   owned   by it   makes   such   qualification

necessary,   except where the failure to be so qualified or in good standing,   as

the case may be, could not, individually or in the aggregate, have or reasonably

be expected to result in a Material Adverse Effect.

 

            (c)   Authorization;   Enforcement.   The   Company   has   the   requisite

corporate   power and authority to enter into and to consummate the   transactions

contemplated by each of the Transaction Documents and otherwise to carry out its

obligations   thereunder.   The execution and delivery of each of the   Transaction

Documents   by   the   Company   and   the   consummation   by it of   the   transactions

contemplated   thereby have been duly   authorized by all necessary   action on the

part of the   Company   and no   further   action   is   required   by the   Company   in

connection therewith.   Each Transaction Document has been (or upon delivery will

have been) duly executed by the Company and, when   delivered in accordance   with

the terms   hereof,   will   constitute   the valid and   binding   obligation   of the

Company   enforceable against the Company in accordance with its terms, except as

such   enforceability   may   be   limited   by   applicable   bankruptcy,   insolvency,

reorganization,    moratorium,   liquidation   or   similar   laws   relating   to,   or

affecting   generally the   enforcement of,   creditors'   rights and remedies or by

other equitable principles of general application.

 

            (d) No Conflicts.   The   execution,   delivery and   performance of the

Transaction   Documents by the Company and the consummation by the Company of the

transactions   contemplated   thereby   do not and   will not (i)   conflict   with or

violate any   provision   of the   Company's   or any   Subsidiary's   certificate   or

articles of incorporation,   bylaws or other organizational or charter documents,

or (ii) conflict   with, or constitute a default (or an event that with notice or

lapse of time or both   would   become a   default)   under,   or give to others   any

rights of termination,   amendment, acceleration or cancellation (with or without

notice, lapse of time or both) of, any agreement, credit facility, debt or other

instrument   (evidencing   a Company or   Subsidiary   debt or   otherwise)   or other

understanding   to which the Company or any Subsidiary is a party or by which any

property   or asset of the Company or any   Subsidiary   is bound or   affected,   or

 

 

                                       12

<PAGE>

 

(iii)   result in a violation   of any law,   rule,   regulation,   order,   judgment,

injunction,   decree or other restriction of any court or governmental   authority

to which the Company or a   Subsidiary   is subject   (including   federal and state

securities   laws and   regulations),   or by which   any   property   or asset of the

Company   or a   Subsidiary   is bound or   affected;   except in the case of each of

clauses (ii) and (iii),   such as could not,   individually   or in the   aggregate,

have or reasonably be expected to result in a Material Adverse Effect. Except as

set forth in Schedule   3.1(d),   payments of cash on account of   principal   of or

interest under the Notes, upon any Event of Default under the Notes, as a result

of liquidated damages under any Transaction   Document or upon a Buy-In under and

as such term is   defined   in a Warrant   will not   require   the   consent   of, any

payment to, or the   springing   of any Lien in favor of any lender to or creditor

of the Company or any   Subsidiary   (under a credit   facility,   loan agreement or

otherwise)   and will not result in a default   under any such credit   facilities,

loans or other agreements.

 

            (e) Filings,   Consents and Approvals. The Company is not required to

obtain any consent,   waiver,   authorization   or order of, give any notice to, or

make any filing or registration   with, any court or other federal,   state, local

or   other   governmental   authority   or   other   Person   in   connection   with   the

execution, delivery and performance by the Company of the Transaction Documents,

other   than (i) the   filing   with   the   Commission   of one or more   Registration

Statements in accordance with the requirements   Registration   Rights   Agreement,

(ii) filings   required by state securities laws, (iii) the filing of a Notice of

Sale of   Securities   on Form D with the   Commission   under   Regulation   D of the

Securities   Act (iv) the filings   required in   accordance   with   Section 4.7 and

4.10,   and (iv) those that have been made or obtained   prior to the date of this

Agreement.

 

            (f)   Issuance   of the   Securities.   The   Securities   have   been duly

authorized   and,   when issued and paid for in   accordance   with the   Transaction

Documents,   will be duly and validly issued, fully paid and nonassessable,   free

and clear of all   Liens.   The   Company   has   reserved   from its duly   authorized

capital stock a number of shares of Common Stock issuable upon conversion of the

Notes and upon exercise of the Warrants,   which number of reserved shares is not

less than the Required Minimum calculated as of the date hereof.

 

            (g) Capitalization. The number of shares and type of all authorized,

issued and   outstanding   capital stock of the Company,   and all shares of Common

Stock   reserved for issuance   under the Company's   various   option and incentive

plans, is specified in the SEC Reports.   Except as specified in the SEC Reports,

no securities of the Company are entitled to preemptive or similar   rights,   and

no   Person   has   any   right   of   first   refusal,    preemptive   right,   right   of

participation,    or   any   similar   right   to   participate   in   the   transactions

contemplated   by the   Transaction   Documents.   Except   as   specified   in the SEC

Reports,    and   except   in   connection    with   the   issuance   of    Anti-Dilution

Entitlements and New Entitlements (each as defined in the Amendment),   there are

no   outstanding   options,   warrants,   scrip   rights to   subscribe   to,   calls or

commitments of any character   whatsoever   relating to, or securities,   rights or

obligations convertible into or exchangeable for, or giving any Person any right

to   subscribe   for or   acquire,   any   shares   of   Common   Stock,   or   contracts,

commitments,   understandings   or   arrangements   by   which   the   Company   or   any

Subsidiary is or may become bound to issue additional shares of Common Stock, or

securities or rights   convertible or   exchangeable   into shares of Common Stock.

Except in connection   with the issuance of   Anti-Dilution   Entitlements   and New

 

                                       13

<PAGE>

 

Entitlements, the issue and sale of the Securities will not, immediately or with

the passage of time,   obligate   the Company to issue   shares of Common   Stock or

other securities to any Person (other than the Investors) and will not result in

a right of any holder of Company securities to adjust the exercise,   conversion,

exchange or reset price under such securities.

 

            (h) SEC   Reports;   Financial   Statements.   The Company has filed all

reports,   forms   or other   information   required   to be   filed   by it under   the

Securities   Act and the Exchange   Act,   including   pursuant to Section   13(a) or

15(d) thereof,   for the twelve months preceding the date hereof (or such shorter

period as the Company was required by law to file such reports)   (the   foregoing

materials   being   collectively   referred   to   herein as the "SEC   REPORTS"   and,

together   with   the   Schedules   to this   Agreement   (if   any),   the   "DISCLOSURE

MATERIALS") on a timely basis or has timely filed a valid extension of such time

of filing and has filed any such SEC Reports prior to the expiration of any such

extension.   As of   their   respective   dates,   the SEC   Reports   complied   in all

material   respects with the   requirements of the Securities Act and the Exchange

Act and the rules and regulations of the Commission promulgated thereunder,   and

none of the SEC   Reports,   when   filed,   contained   any   untrue   statement   of a

material fact or omitted to state a material fact required to be stated   therein

or   necessary   in   order   to   make   the   statements   therein,   in   light   of the

circumstances   under   which   they   were   made,   not   misleading.   The   financial

statements   of the Company   included in the SEC Reports   comply in all   material

respects with applicable   accounting   requirements and the rules and regulations

of the Commission with respect thereto as in effect at the time of filing.   Such

financial   statements   have been prepared in   accordance   with GAAP applied on a

consistent   basis   during   the   periods   involved,   except   as may be   otherwise

specified in such financial   statements or the notes thereto, and fairly present

in all   material   respects   the   financial   position   of   the   Company   and   its

consolidated   Subsidiaries   as of and for the dates   thereof   and the results of

operations   and cash flows for the periods then ended,   subject,   in the case of

unaudited statements,   to normal,   immaterial,   year-end audit adjustments.   For

purposes of this Agreement,   any reports, forms or other information provided to

the Commission whether by filing, furnishing or otherwise providing, is included

in the term "filed" (or any derivations thereof).

 

             (i) Press Releases.   The press releases   disseminated by the Company

during the twelve months   preceding the date of this Agreement   taken as a whole

do not   contain   any   untrue   statement   of a   material   fact or omit to state a

material   fact   required to be stated   therein or necessary in order to make the

statements therein, in light of the circumstances under which they were made and

when made, not misleading.

 

            (j) Material Changes. Since the date of the latest audited financial

statements included within the SEC Reports,   except as specifically disclosed in

the SEC Reports, (i) there has been no event, occurrence or development that has

had or that could reasonably be expected to result in a Material Adverse Effect,

(ii) the Company has not   incurred any   liabilities   (contingent   or   otherwise)

other than (A) trade payables,   accrued expenses and other liabilities   incurred

in the   ordinary   course   of   business   consistent   with past   practice   and (B)

liabilities   (not   to   exceed   $50,000)   not   required   to be   reflected   in the

Company's   financial   statements pursuant to GAAP or required to be disclosed in

filings made with the   Commission,   (iii) the Company has not altered its method

of accounting or the identity of its auditors, (iv) the Company has not declared

 

                                       14

<PAGE>

 

or   made   any   dividend   or   distribution   of   cash   or   other   property   to its

stockholders or purchased, redeemed or made any agreements to purchase or redeem

any shares of its capital   stock,   and (v) the Company has not issued any equity

securities to any officer,   director or Affiliate,   except   pursuant to existing

Company stock option plans and consistent   with past practice.   The Company does

not have pending before the Commission any request for confidential treatment of

information.

 

            (k)   Litigation.   There is no Action which (i) adversely   affects or

challenges the legality,   validity or   enforceability   of any of the Transaction

Documents or the Securities or (ii) except as specifically   disclosed in the SEC

Reports,   would, if there were an unfavorable   decision,   individually or in the

aggregate,   have or   reasonably   be   expected   to result in a   Material   Adverse

Effect.   Neither   the Company nor any   Subsidiary,   nor any   director or officer

thereof   (in his or her   capacity   as such),   is or has been the   subject of any

Action   involving a claim of violation of or   liability   under   federal or state

securities laws or a claim of breach of fiduciary   duty,   except as specifically

disclosed in the SEC Reports.   There has not been,   and to the   knowledge of the

Company there is not pending,   any investigation by the Commission involving the

Company or any   current or former   director or officer of the Company (in his or

her   capacity as such).   The   Commission   has not issued any stop order or other

order suspending the   effectiveness   of any registration   statement filed by the

Company or any Subsidiary under the Exchange Act or the Securities Act.

 

            (l) Labor   Relations.   No material   labor dispute   exists or, to the

knowledge of the Company,   is imminent   with respect to any of the   employees of

the Company.

 

            (m)   Compliance.   Neither the Company nor any   Subsidiary   (i) is in

default   under or in violation   of (and no event has occurred   that has not been

waived that, with notice or lapse of time or both,   would result in a default by

the Company or any   Subsidiary   under),   nor has the   Company or any   Subsidiary

received   notice   of a   claim   that   it is in   default   under   or   that it is in

violation of, any indenture,   loan or credit agreement or any other agreement or

instrument   to which it is a party   or by which it or any of its   properties   is

bound   (whether or not such default or violation   has been   waived),   (ii) is in

violation of any order of any court,   arbitrator or governmental   body, or (iii)

is or   has   been   in   violation   of   any   statute,   rule   or   regulation   of any

governmental authority, including without limitation all foreign, federal, state

and local laws relating to taxes, environmental protection,   occupational health

and safety, product quality and safety and employment and labor matters,   except

in each case as could not, individually or in the aggregate,   have or reasonably

be expected to result in a Material Adverse Effect. The Company is in compliance

with all effective   requirements of the   Sarbanes-Oxley Act of 2002, as amended,

and the rules and   regulations   thereunder,   that are   applicable   to it, except

where such noncompliance could not have or reasonably be expected to result in a

Material Adverse Effect.

 

            (n) Regulatory Permits. The Company and the Subsidiaries possess all

certificates,   authorizations   and permits   issued by the   appropriate   federal,

state,   lo